A market for reserve capacity: experience and simulation

This paper addresses the market for reserve capacity that was introduced in Norway in 2000 as a consequence of a narrowing capacity margin. The new element introduced by this market is a market-based payment for availability. A simulation model is developed to show how this market interacts with the spot and regulating markets and leads to an equilibrium. We study how changed spot demand and changed demand for capacity reserves affect the joint equilibrium and the probability for load shedding.